“A Hell of a Lot of Volatility”

Sellers took control of the market once again yesterday as trade war fears spread, sinking the major averages deep into the red.

The Dow Jones Industrial Average and S&P 500 each notched a loss of more than 1% Thursday despite a late-day rally. Meanwhile, the tech-heavy Nasdaq continues to lead the market lower after posting a loss approaching 1.6%.

Will we get any clarity on a potential trade deal before the long weekend?

I doubt it.

Trump clouded the waters again late yesterday when he said a revised U.S.-China trade deal might include lifting restrictions against Huawei, “while at the same time calling the Chinese telecommunications giant very dangerous,” Reuters reports.

While we continue to wait for the illusive “swift end” to the trade war, the major averages are recovering some of their losses this morning. The Dow is sneaking higher by almost 150 points, extending its late afternoon rally off its Thursday lows.

While trade chatter dominates the stock market, oil is having a very bad week.

The red-hot oil rally of 2019 is officially on pause after crude plunged nearly 6% yesterday to settle near two-month lows. It was oil’s biggest single-day decline since the market bottomed in December.

Crude traders are stuck between a rock and a hard place as they attempt to navigate a market affected by Iranian sanctions, potential OPEC cuts, and trade war concerns.

Then there’s the growing supply glut further clouding the picture. Oil inventories jumped by 4.7 million barrels last week, increasing the U.S. crude stockpile to July 2017 levels.

The result: volatility in the oil market might be here to stay.

“Oil investors should get accustomed to ‘a hell of a lot of volatility,’” ConocoPhillips CEO Ryan Lance said, via Bloomberg. “Global oil markets generally remain ‘well supplied’ but also ‘thinly balanced’ between supply and demand.”

Earlier this month, I pondered oil’s chances at maintaining its furious rally as crude marched higher virtually uninterrupted since bottoming out near $45 in late 2018. At the time, it had jumped more than 45% off its lows, with a barrel of light crude topping $65 by late April.

Taking a purely objective view of price, it appears this year’s impressive crude rally has run out of steam.

WTIC

Crude is recovering early this morning (it’s up about 1% and hanging around just below its March highs). For now, this move is nothing but a relief rally.

Speaking of relief, gold could certainly benefit from some additional buying pressure.

Despite the recent selloff in global equities and the escalating trade war, gold has yet to enjoy an extended rally.

Yesterday’s jump of a little more than $11 was the yellow metal’s biggest rally in almost two weeks. But gold is giving back some of these gains this morning as stocks stabilize. As of right now, gold is just about $10 above its 2019 lows and showing little to no sign that it’s ready for an extended move higher.

GOLD

As we’ve discussed many times this year, gold built a monster base since it registered its bear-market lows in late 2015. Over the past three years, gold has bounced off its lows near $1,050 and attempted several rallies that have all failed before hitting $1,400.

Last month, it looked as if a five-month rally was setting the metal up for its most important breakout in more than a decade. But gold failed to follow-through to the upside. In fact, it hasn’t been able to build any momentum above $1,300 since February.

With the trade war drama monopolizing the financial headlines, now should be the time for gold to shine. It’s failure to gain any traction during these tumultuous times tells us to stay away until conditions improve.

Sincerely,

Greg Guenthner

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Greg Guenthner

Greg Guenthner, CMT, is the editor of Opening Bell Fortunes and Seven Figure Signals. He has been with Agora Financial/Seven Figure Publishing since 2005. In 2019, the average position in Greg’s Sunrise Fortunes portfolio outperformed the S&P 500 by 1.65x.

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